The American Baker’s Association reports that annual sales of bakery goods last
ID: 1204107 • Letter: T
Question
The American Baker’s Association reports that annual sales of bakery goods last year rose 15 percent, driven by a 50 percent increase in the demand for bran muffins. Most of the increase was attributed to a report that diets rich in bran help prevent certain types of cancer. You are the manager of a bakery that produces and packages gourmet bran muffins, and you currently sell bran muffins in packages of three. However, as a result of this new report, a typical consumer’s inverse demand for your bran muffins is now P = 12 - 1.5Q. If your cost of producing bran muffins is C(Q) = 4.5Q, determine the optimal number of bran muffins to sell in a single package and the optimal package price. Instruction: Round your answer for the optimal package price to two decimal places.
Optimal package size:
units Optimal package price: $
Explanation / Answer
Ans. Since, there is already in industry, and we are a firm, this is the case of perfect competition, so the profit maximizing condition would be: P=MC,
Now, P= 12-1.5Q
MC= dTC/dQ = 4.5.
12-1.5Q = 4.5
Therefore, Q = 5 and P = $4.5
Hence this is the answer.
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